meso-6k_20181231.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

under the Securities Exchange Act of 1934

Filed in the month of February 2019 for the period ended December 31, 2018

Commission File Number 001-37626

 

Mesoblast Limited

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation of Registrant’s name into English)

Australia

(Jurisdiction of incorporation or organization)

Silviu Itescu

Chief Executive Officer and Executive Director

Level 38

55 Collins Street

Melbourne 3000

Australia

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F:

Form 20-F  Form 40-F 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes   No 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes   No 

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

Page

Currency of Presentation and Certain Defined Terms

 

3

Forward-Looking Statements

 

3

Financial Statements

 

5

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

37

Risk Factors

 

67

Signatures

 

101

Exhibit

 

102

 

Page 2


 

QUARTERLY REPORT ON FORM 6-K

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2018

 

Foreword

 

The Board of Directors of Mesoblast Limited (ABN 68 109 431 870) has resolved to submit the following report of Mesoblast

Limited and its subsidiaries for the three and six months ended December 31, 2018 in compliance with the provisions of the

Corporations Act 2001.

 

Directors of Mesoblast Limited in office at any time during or since the end of the six months ended December 31, 2018 were:

 

Name Position

Silviu Itescu Executive Director

Brian Jamieson Chairman

William M Burns Non-executive Director, Vice Chairman

Donal O’Dwyer Non-executive Director, Chair of Nomination and Remuneration Committee

Eric Rose Non-executive Director

Michael Spooner Non-executive Director, Chair of Audit and Risk Committee

Joseph R SwedishNon-executive Director

Shawn C Tomasello  Non-executive Director (since July 11, 2018)

Currency Presentation and Certain Defined Terms

In this Quarterly Report on Form 6-K, references to “U.S.” or “United States” are to the United States of America, its territories and its possessions.  References to “US$” or “dollars” or “U.S. dollars” are to the legal currency of the United States, references to “€” or “Euro” are to the legal currency of the European Union and references to “A$” or “Australian Dollars” are to the legal currency of Australia. Our financial statements are presented in U.S. dollars and are prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRS. References to a particular “fiscal” year are to our fiscal year ended June 30 of such year.

All references to “we”, “us”, “our”, “Mesoblast” or “the Group” shall mean Mesoblast Limited (ABN 68 109 431 870) and its subsidiaries. We own or have rights to trademarks and trade names that we use in connection with the operation of our business, including our corporate name, logos, product names and website names. Other trademarks and trade names appearing in this Quarterly Report are the property of their respective owners.  

Forward-Looking Statements

This Quarterly Report on Form 6-K includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:

 

the initiation, timing, progress and results of our preclinical and clinical studies, and our research and development programs;

 

our ability to advance product candidates into, enroll and successfully complete, clinical studies, including multi-national clinical trials;

 

our ability to advance our manufacturing capabilities;

 

the timing or likelihood of regulatory filings and approvals, manufacturing activities and product marketing activities, if any;

 

the commercialization of our product candidates, if approved;

 

regulatory or public perceptions and market acceptance surrounding the use of stem-cell based therapies;

Page 3


 

 

the potential for our product candidates, if they are approved, to be withdrawn from the market due to patient adverse events or deaths;

 

the potential benefits of strategic collaboration agreements and our ability to enter into and maintain established strategic collaborations;

 

our ability to establish and maintain intellectual property on our product candidates and our ability to successfully defend these in cases of alleged infringement;

 

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

 

our ability to obtain additional financing;

 

estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

 

our financial performance;

 

developments relating to our competitors and our industry;

 

the pricing and reimbursement of our product candidates, if approved; and

 

other risks and uncertainties, including those listed under the caption “Risk Factors” included elsewhere in this Quarterly Report on Form 6-K.

You should read thoroughly this Quarterly Report on Form 6-K and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this Quarterly Report on Form 6-K include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this Quarterly Report on Form 6-K relate only to events or information as of the date on which the statements are made in this Quarterly Report on Form 6-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

Page 4


 

Consolidated Income Statement

(unaudited)

 

 

 

 

 

Three Months Ended

December 31,

 

Six Months Ended

December 31,

 

(in U.S. dollars, in thousands, except per share amount)

 

Note

 

2018

 

 

2017

 

2018

 

 

2017

 

Revenue

 

3

 

 

1,870

 

 

 

13,397

 

 

13,507

 

 

 

14,571

 

Research & development

 

 

 

 

(15,488

)

 

 

(16,222

)

 

(33,975

)

 

 

(31,590

)

Manufacturing commercialization

 

 

 

 

(5,401

)

 

 

(801

)

 

(9,717

)

 

 

(1,678

)

Management and administration

 

 

 

 

(5,126

)

 

 

(5,643

)

 

(10,742

)

 

 

(10,655

)

Fair value remeasurement of contingent consideration

 

3

 

 

(11

)

 

 

(793

)

 

(634

)

 

 

8,702

 

Other operating income and expenses

 

3

 

 

(827

)

 

 

423

 

 

(978

)

 

 

1,091

 

Finance costs

 

3

 

 

(2,486

)

 

 

 

 

(5,139

)

 

 

 

Loss before income tax

 

3

 

 

(27,469

)

 

 

(9,639

)

 

(47,678

)

 

 

(19,559

)

Income tax benefit

 

4

 

 

2,865

 

 

 

23,342

 

 

3,575

 

 

 

26,240

 

(Loss)/profit attributable to the owners of Mesoblast Limited

 

 

 

 

(24,604

)

 

 

13,703

 

 

(44,103

)

 

 

6,681

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Losses)/earnings per share from continuing operations attributable

   to the ordinary equity holders of the Group:

 

 

 

Cents

 

 

Cents

 

Cents

 

 

Cents

 

Basic - (losses)/earnings per share

 

10

 

 

(5.00

)

 

 

2.91

 

 

(9.08

)

 

 

1.46

 

Diluted - (losses)/earnings per share

 

10

 

 

(5.00

)

 

 

2.91

 

 

(9.08

)

 

 

1.46

 

 

The above consolidated income statement should be read in conjunction with the accompanying Notes.

Page 5


 

Consolidated Statement of Comprehensive Income

(unaudited)

 

 

 

 

 

Three Months Ended

December 31,

 

Six Months Ended

December 31,

 

(in U.S. dollars, in thousands)

 

Note

 

2018

 

 

2017

 

2018

 

 

2017

 

(Loss)/profit for the period

 

 

 

 

(24,604

)

 

 

13,703

 

 

(44,103

)

 

 

6,681

 

Other comprehensive (loss)/income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Items that may be reclassified to profit and loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in the fair value of financial assets

 

 

 

 

108

 

 

 

47

 

 

195

 

 

 

67

 

Exchange differences on translation of foreign operations

 

 

 

 

(160

)

 

 

(385

)

 

(183

)

 

 

(500

)

Other comprehensive (loss)/income for the period,

   net of tax

 

 

 

 

(52

)

 

 

(338

)

 

12

 

 

 

(433

)

Total comprehensive (losses)/income attributable to the

   owners of Mesoblast Limited

 

 

 

 

(24,656

)

 

 

13,365

 

 

(44,091

)

 

 

6,248

 

 

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying Notes.

Page 6


 

Consolidated Statement of Changes in Equity

(unaudited)

 

(in U.S. dollars, in thousands)

 

Note

 

Issued Capital

 

 

Share Option

Reserve

 

 

Investment

Revaluation

Reserve

 

 

Foreign

Currency

Translation Reserve

 

 

Retained

Earnings

 

 

Total

 

Balance as of July 1, 2017

 

 

 

 

830,425

 

 

 

69,919

 

 

 

(303

)

 

 

(38,373

)

 

 

(344,902

)

 

 

516,766

 

Profit/(loss) for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,681

 

 

 

6,681

 

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

 

67

 

 

 

(500

)

 

 

 

 

 

(433

)

Total comprehensive profit/(loss) for the period

 

 

 

 

 

 

 

 

 

 

67

 

 

 

(500

)

 

 

6,681

 

 

 

6,248

 

Transactions with owners in their

   capacity as owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions of equity net of transaction costs

 

 

 

 

48,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48,564

 

 

 

8

 

 

48,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48,564

 

Fair value of share-based payments

 

 

 

 

 

 

 

3,909

 

 

 

 

 

 

 

 

 

 

 

 

3,909

 

Reclassification of modified options to/(from) liability

 

 

 

 

 

 

 

118

 

 

 

 

 

 

 

 

 

 

 

 

118

 

 

 

 

 

 

 

 

 

4,027

 

 

 

 

 

 

 

 

 

 

 

 

4,027

 

Balance as of December 31, 2017

 

8

 

 

878,989

 

 

 

73,946

 

 

 

(236

)

 

 

(38,873

)

 

 

(338,221

)

 

 

575,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of July 1, 2018

 

 

 

 

889,481

 

 

 

75,974

 

 

 

21

 

 

 

(39,276

)

 

 

(380,192

)

 

 

546,008

 

Profit/(loss) for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,103

)

 

 

(44,103

)

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

 

195

 

 

 

(183

)

 

 

 

 

 

12

 

Total comprehensive profit/(loss) for the period

 

 

 

 

 

 

 

 

 

 

195

 

 

 

(183

)

 

 

(44,103

)

 

 

(44,091

)

Transactions with owners in their

   capacity as owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions of equity net of transaction costs

 

 

 

 

19,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,441

 

 

 

8

 

 

19,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,441

 

Transfer of exercised options

 

 

 

 

313

 

 

 

(313

)

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of share-based payments

 

 

 

 

 

 

 

3,195

 

 

 

 

 

 

 

 

 

 

 

 

3,195

 

Reclassification of modified options to liability

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

313

 

 

 

2,886

 

 

 

 

 

 

 

 

 

 

 

 

3,199

 

Balance as of December 31, 2018

 

8

 

 

909,235

 

 

 

78,860

 

 

 

216

 

 

 

(39,459

)

 

 

(424,295

)

 

 

524,557

 

 

The above consolidated statement of changes in equity should be read in conjunction with the accompanying Notes.

Page 7


 

Consolidated Balance Sheet

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

(in U.S. dollars, in thousands)

 

Note

 

As of

December 31,

2018

 

 

As of

June 30,

2018

 

Assets

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

5(a)

 

 

77,022

 

 

 

37,763

 

Trade & other receivables

 

5(b)

 

 

3,934

 

 

 

50,366

 

Prepayments

 

5(b)

 

 

16,845

 

 

 

12,942

 

Total Current Assets

 

 

 

 

97,801

 

 

 

101,071

 

 

 

 

 

 

 

 

 

 

 

 

Non-Current Assets

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

871

 

 

 

1,084

 

Financial assets at fair value through other comprehensive income

 

 

 

 

2,516

 

 

 

2,321

 

Other non-current assets

 

 

 

 

3,330

 

 

 

3,361

 

Intangible assets

 

6(a)

 

 

583,815

 

 

 

584,606

 

Total Non-Current Assets

 

 

 

 

590,532

 

 

 

591,372

 

Total Assets

 

 

 

 

688,333

 

 

 

692,443

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

Trade and other payables

 

5(c)

 

 

25,120

 

 

 

18,921

 

Provisions

 

 

 

 

5,594

 

 

 

5,082

 

Borrowings

 

5(d)

 

 

3,095

 

 

 

 

Total Current Liabilities

 

 

 

 

33,809

 

 

 

24,003

 

 

 

 

 

 

 

 

 

 

 

 

Non-Current Liabilities

 

 

 

 

 

 

 

 

 

 

Deferred tax liability

 

6(b)

 

 

16,504

 

 

 

20,079

 

Deferred consideration

 

6(c)

 

 

10,000

 

 

 

 

Provisions

 

 

 

 

43,076

 

 

 

42,956

 

Borrowings

 

5(d)

 

 

60,387

 

 

 

59,397

 

Total Non-Current Liabilities

 

 

 

 

129,967

 

 

 

122,432

 

Total Liabilities

 

 

 

 

163,776

 

 

 

146,435

 

Net Assets

 

 

 

 

524,557

 

 

 

546,008

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

Issued Capital

 

8

 

 

909,235

 

 

 

889,481

 

Reserves

 

 

 

 

39,617

 

 

 

36,719

 

(Accumulated losses)/retained earnings

 

 

 

 

(424,295

)

 

 

(380,192

)

Total Equity

 

 

 

 

524,557

 

 

 

546,008

 

 

The above consolidated balance sheet should be read in conjunction with the accompanying Notes.

Page 8


 

Consolidated Statement of Cash Flows

(unaudited)

 

 

 

 

 

Six months ended

December 31,

 

(in U.S. dollars, in thousands)

 

Note

 

2018

 

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Commercialization revenue received

 

 

 

 

2,101

 

 

 

1,080

 

Milestone payment received

 

 

 

 

26,409

 

 

 

6,125

 

Research and development tax incentive received

 

 

 

 

1,654

 

 

 

 

Payments to suppliers and employees (inclusive of goods and

   services tax)

 

 

 

 

(46,186

)

 

 

(42,593

)

Interest received

 

 

 

 

293

 

 

 

192

 

Interest paid

 

 

 

 

(1,783

)

 

 

 

Income taxes (paid)/refunded

 

 

 

 

(3

)

 

 

(25

)

Net cash (outflows) in operating activities

 

7(b)

 

 

(17,515

)

 

 

(35,221

)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Investment in fixed assets

 

 

 

 

(112

)

 

 

(137

)

Payments for contingent consideration

 

 

 

 

 

 

 

(543

)

Net cash (outflows) in investing activities

 

 

 

 

(112

)

 

 

(680

)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

 

 

28,950

 

 

 

 

Payments of transaction costs from borrowings

 

 

 

 

(1,546

)

 

 

 

Proceeds from issue of shares

 

 

 

 

30,258

 

 

 

40,532

 

Payments for share issue costs

 

 

 

 

(607

)

 

 

(2,603

)

Net cash inflows by financing activities

 

 

 

 

57,055

 

 

 

37,929

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

 

 

39,428

 

 

 

2,028

 

Cash and cash equivalents at beginning of period

 

 

 

 

37,763

 

 

 

45,761

 

FX (losses) on the translation of foreign bank accounts

 

 

 

 

(169

)

 

 

(403

)

Cash and cash equivalents at end of period

 

7(a)

 

 

77,022

 

 

 

47,386

 

 

The above consolidated statement of cash flows should be read in conjunction with the accompanying Notes.

 

 

Page 9


 

Notes to Consolidated Financial Statements

(unaudited)

Mesoblast Limited (the “Company”) and its subsidiaries (the “Group”) are primarily engaged in the development of regenerative medicine products. The Company’s primary proprietary regenerative medicine technology platform is based on specialized cells known as mesenchymal lineage adult stem cells. The Company was formed in 2004 as an Australian company and has been listed on the Australian Securities Exchange (the “ASX”) since 2004. In November 2015, the Company listed in the United States of America (“U.S.”) on the Nasdaq Global Select Market (“Nasdaq”) and from this date has been dual-listed in Australia and the U.S.

These financial statements are presented in U.S. dollars (“$” or “USD” or “US$”), unless otherwise noted, including certain amounts that are presented in Australian dollars (“AUD” or “A$”).

 

1. Basis of preparation

Mesoblast Limited is a for-profit entity for the purpose of preparing the financial statements. The condensed financial statements of Mesoblast Limited and its subsidiaries have been prepared in accordance with International Accounting Standard IAS 34 Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”), and are unaudited. These interim financial statements do not include all of the notes and disclosures required by International Financial Reporting Standards, as issued by the IASB, for annual consolidated financial statements and should therefore be read in conjunction with our annual report on Form 20-F for the year ended June 30, 2018.

 

Preparation of interim financial statements for users in multiple jurisdictions

 

The Company has prepared the interim financial statements to conform to the requirements and needs of users of the financial

statements located in both Australia and the U.S.

 

U.S. users: The Company has prepared the interim financial statements to conform to the requirements of IAS 34 Interim Financial Reporting. Consistent with U.S. domestic registrants, the Company has labelled the interim financial information “unaudited” because the interim financial information is not subject to an audit by our independent registered public accounting firm. The auditor’s independence declaration and independent auditor’s review report are included within this filing to meet the requirements of Australian laws and regulations and are furnished, not filed, for the purposes of incorporation of the related financial statements in any U.S. registration document.

 

Australian users: The Company has prepared the interim financial statements to conform to the requirements of the Corporations Act 2001 and AASB 134 Interim Financial Reporting. A review of the interim financial information has been performed by the Company’s independent auditors to meet the requirements of Australian Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity and users should refer to the auditor’s independence declaration and independent auditor’s review report included within this filing.

(i) Going concern

For the six months ended December 31, 2018, and 2017, the Group incurred a total comprehensive loss after income tax of $44.1 million and gain after income tax of $6.2 million, respectively, and had net cash outflows from operations of $17.5 million, and $35.2 million, respectively. As of December 31, 2018, the Group held total cash and cash equivalents of $77.0 million. The Group also received $15.0 million of gross cash proceeds from drawing a further tranche of funding from its existing credit facility with Hercules Capital, Inc. (“Hercules”) in January 2019.

The Group has committed to entering into non-dilutive commercial partnering transactions to fund operations. The Group also continues to work on various cost containment and deferment strategies. A fully discretionary equity facility remains for up to A$120.0 million/US$90.0 million over the next 6 months to provide additional funds as required. The Group may also consider equity-based financing and drawing further debt funding on current debt arrangements to fund future operational requirements.

There is uncertainty related to the Group’s ability to partner programs, raise capital or debt at terms to meet the Group’s requirements. Additionally, there is uncertainty related to the Group’s ability to sustainably maintain implemented cost reductions and further defer programs on a timely basis while achieving expected outcomes.

Page 10


 

The continuing viability of the Group and its ability to continue as a going concern and meet its debts and commitments as they fall due are dependent upon non-dilutive funding in the form of commercial partnering transactions or equity-based financing to fund future operations, together with maintaining implemented cost containment and deferment strategies.

Management and the directors believe that the Group will be successful in the above matters and, accordingly, have prepared the financial report on a going concern basis, notwithstanding that there is a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern and that it may be unable to realize its assets and liabilities in the normal course of business.

References to matters that may cast significant doubt about the Group’s ability to continue as a going concern also raise substantial doubt as contemplated by the Public Company Accounting Oversight Board (“PCAOB”) standards.

(ii) New and amended standards adopted by the Group

Revenue recognition

The Group adopted IFRS 15 Revenue from Contracts with Customers on July 1, 2018, using the modified retrospective approach. Revenue from contracts with customers is measured and recognized in accordance with the five step model prescribed by the standard.

First, contracts with customers within the scope of IFRS 15 are identified. Distinct promises within the contract are identified as performance obligations. The transaction price of the contract is measured based on the amount of consideration the Group expects to be entitled from the customer in exchange for goods or services. Factors such as requirements around variable consideration, significant financing components, noncash consideration, or amounts payable to customers also determine the transaction price. The transaction is then allocated to separate performance obligations in the contract based on relative standalone selling prices. Revenue is recognized when, or as, performance obligations are satisfied, which is when control of the promised good or service is transferred to the customer. Revenues comprise commercialization and milestone revenue, research and development tax incentives and interest revenue.

There was no cumulative impact of the adoption of IFRS 15 Revenue from Contracts with Customers on July 1, 2018.

Revenues from contracts with customers comprise commercialization and milestone revenue. The Group also has revenue from research and development tax incentives and interest revenue.

Commercialization and milestone revenue

Commercialization and milestone revenue generally includes non-refundable up-front license and collaboration fees; milestone payments, the receipt of which is dependent on certain clinical, regulatory or commercial milestones; as well as royalties on product sales of licensed products, if and when such product sales occur; and revenue from the supply of products. Payment is generally due on standard terms of 30 to 60 days.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue or deferred consideration in our consolidated balance sheet, depending on the nature of the arrangement. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified within current liabilities. Amounts not expected to be recognized as revenue within 12 months following the balance sheet date are classified within non-current liabilities.

Milestone revenue

The Group applies the five-step method under the standard to measure and recognize milestone revenue.

The receipt of milestone payments is often contingent on meeting certain clinical, regulatory or commercial targets, and is therefore considered variable consideration. The Group estimate the transaction price of the contingent milestone using the most likely amount method. The Group includes in the transaction price some or all of the amount of the contingent milestone only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the contingent milestone is subsequently resolved. Milestone payments that are not within the control of the Group, such as regulatory approvals, are not considered highly probable of being achieved until those approvals are received. Any changes in the transaction price are allocated to all performance obligations in the contract unless the variable consideration relates only to one or more, but not all, of the performance obligations.

When consideration for milestones is a sale-based or usage-based royalty that arises from licenses of IP (such as cumulative net sales targets), revenue is recognized at the later of when (or as) the subsequent sale or usage occurs, or when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

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Licenses of intellectual property

When licenses of IP are distinct from other goods or services promised in the contract, the Group recognizes the transaction price allocated to the license as revenue upon transfer of control of the license to the customer. The Group evaluates all other promised goods or services in the license agreement to determine if they are distinct. If they are not distinct, they are combined with other promised goods or services to create a bundle of promised goods or services that is distinct.

The transaction price allocated to the license performance obligation is recognized based on the nature of the license arrangement. The transaction price is recognized over time if the nature of the license is a “right to access” license. This is when the Group undertakes activities that significantly affect the IP to which the customer has rights, the rights granted by the license directly expose the customer to any positive or negative effects of the Group’s activities, and those activities do not result in the transfer of a good or service to the customer as those activities occur. When licenses do not meet the criteria to be a right to access license, the license is a “right to use” license, and the transaction price is recognized at the point in time when the customer obtains control over the license.

Sales-based or usage-based royalties

Licenses of IP can include royalties that are based on the customer’s usage of the IP or sale of products that contain the IP. The Group applies the specific exception to the general requirements of variable consideration and the constraint on variable consideration for sales-based or usage-based royalties promised in a license of IP. The exception requires such revenue to be recognized at the later of when (or as) the subsequent sale or usage occurs and the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied).

Tasly arrangement

In July 2018, the Group entered into a strategic alliance with Tasly Pharmaceutical Group (“Tasly”) for the development, manufacture and commercialization in China of the Group’s allogeneic MPC products, MPC-150-IM and MPC-25-IC. Tasly received all exclusive rights for MPC-150-IM and MPC-25-IC in China and Tasly will fund all development, manufacturing and commercialization activities in China.

The Group received a $20.0 million up-front technology access fee from Tasly upon closing of this strategic alliance in October 2018. The Group is also entitled to receive $25.0 million on product regulatory approvals in China, double-digit escalating royalties on net product sales and up to six escalating milestone payments when the product candidates reach certain sales thresholds in China.

Under IFRS 15, upon completion of this strategic alliance on September 14, 2018, the Group recognized $10.0 million in milestone revenue from the $20.0 million up-front technology access fee received from Tasly in October 2018 as this is the portion of revenue that control has been transferred to Tasly. The Group recognized the remaining $10.0 million from the $20.0 million up-front payment as deferred consideration on the consolidated balance sheet. The deferred consideration amount will be recognized in revenue when and if control transfers to Tasly based on the Group’s decision regarding the exercise of the Group’s rights in the terms and conditions of the agreement.

 No milestone revenue was recognized in relation to this strategic alliance with Tasly in the six months ended December 31, 2017.

TiGenix arrangement

In December 2017, the Group entered into a patent license agreement with TiGenix NV, now a wholly owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”), which granted Takeda exclusive access to certain of our patents to support global commercialization of the adipose-derived mesenchymal stem cell (“MSC") product, Alofisel®, previously known as Cx601, a product candidate of Takeda, for the local treatment of fistulae.  The agreement includes the right for Takeda to grant sub-licenses to affiliates and third parties.

As part of the agreement, the Group received $5.9 million (€5.0 million) as a non-refundable up-front payment and recognized this amount in revenue in December 2017 upon receipt. In December 2018, the Group received a milestone payment of €5.0 million, the Group recognized revenue of $5.9 million (€5.0 million) pertaining to this milestone in December 2017 as all performance obligations had been satisfied at that time. The Group is entitled to further payments up to €10.0 million when Takeda reaches certain product regulatory milestones. Additionally, the Group will receive single digit royalties on net sales of Alofisel®.  

In the six months ended December 31, 2017, we recognized $11.8 million in milestone revenue in relation to our patent license agreement with Takeda. Within this $11.8 million, $5.9 million (€5.0 million) was recognized in relation to the non-refundable up-front payment received upon execution of the Group’s patent license agreement with Takeda in December 2017 and $5.9 million (€5.0 million) was recognized in relation to further payments received in December 2018 for product Alofisel®. These amounts were recorded in revenue as there were no further performance obligations required in regards to these milestones.

Page 12


 

No milestone revenue was recognized in relation to the patent license agreement with Takeda in the six months ended December 31, 2018.  

JCR arrangement

In October 2013, the Group acquired all of the culture-expanded, MSC-based assets, from Osiris Therapeutics, Inc. (“Osiris”). These assets included assumption of a collaboration agreement (the “JCR Agreement”) with JCR Pharmaceuticals Co., Ltd. (“JCR”), a pharmaceutical company in Japan. Revenue recognized under this model is limited to the amount of cash received or for which the Group are entitled, as JCR has the right to terminate the agreement at any time.

Under the JCR Agreement, JCR is responsible for all development and manufacturing costs including sales and marketing expenses. Under the JCR Agreement, JCR has the right to develop our MSCs in two fields for the Japanese market: exclusive in conjunction with the treatment of hematological malignancies by the use of hematopoietic stem cells derived from peripheral blood, cord blood or bone marrow, or the First JCR Field; and non-exclusive for developing assays that use liver cells for non-clinical drug screening and evaluation, or the Second JCR Field. With respect to the First JCR Field, the Group are entitled to payments when JCR reaches certain commercial milestones and to escalating double-digit royalties. These royalties are subject to possible renegotiation downward in the event of competition from non-infringing products in Japan. With respect to the Second JCR Field, the Group are entitled to a double digit profit share. In October 2018, the Group expanded its partnership with JCR in Japan for wound healing in patients with Epidermolysis Bullosa (“EB”). The Group will receive royalties on TEMCELL product sales for EB. The Group applies the sales-based and usage-based royalty exception for licenses of intellectual property and therefore recognizes royalty revenue at the later of when the subsequent sale or usage occurs and the associated performance obligation has been satisfied.

In the six months ended December 31, 2018, the Group recognized $2.2 million in commercialization revenue relating to royalty income earned on sales of TEMCELL® Hs. Inj., a registered trademark of JCR (“TEMCELL”) in Japan by our licensee JCR, compared with $1.6 million for the six months ended December 31, 2017. These amounts were recorded in revenue as there are no further performance obligations required in regards to these items.

In the six months ended December 31, 2018 and 2017, the Group recognized $1.0 million in milestone revenue upon our licensee, JCR, reaching cumulative net sales milestones for sales of TEMCELL in Japan. These amounts were recorded in revenue as there are no further performance obligations required in regards to these items.

Financial Instruments

The Group adopted IFRS 9 Financial Instruments on July 1, 2018. IFRS 9 introduced revisions in the classification and measurement of financial instruments with a principle-based approach which is driven by cash flow characteristics and business model.

The Group has had following impacts on its financial assets and liabilities from the adoption of the new standard on July 1, 2018:

 

Accounting for non-trading equity investments – IFRS 9 requires investments in equity instruments to be recorded at fair value with changes recognized through profit or loss (FVTPL). There is an allowance for management to make an irrevocable election on initial recognition for fair value changes in non-trading equity investments to be recorded in other comprehensive income (FVOCI). On transition to IFRS 9, the Group has made an election to record its available-for-sale financial asset measured at FVOCI in an equity instrument at FVOCI. Therefore there has been no impact on the measurement of the available-for-sale financial asset on transition.

 

 

Accounting for financial liabilities – Under IFRS 9 there is an allowance for managing to make an irrevocable election on initial recognition for financial liabilities that are measured at amortized cost to be measured at FVTPL. The Group has not designated any of its financial liabilities carried at amortized cost as FVTPL using the fair value option upon adoption of IFRS 9 on July 1, 2018. Therefore, there has been no impact on the transition to IFRS 9 from July 1, 2018.

In the opinion of management, the interim financial data includes all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results for the interim periods. Other than the new and amended standards adopted by the Group above these interim financial statements follow the same accounting policies as compared to the June 30, 2018 consolidated financial statements and related notes as filed with the Australian Securities Exchange and the Securities and Exchange Commission.

(iii) New accounting standards and interpretations not yet adopted by the Group

Certain new accounting standards and interpretations have been published that are not mandatory for the six month period ended December 31, 2018. The Group has not elected to apply any pronouncements before their operative date in the reporting period beginning July 1, 2018.

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Initial application of the standards is not expected to affect any of the amounts recognized or disclosures made in the current financial report and management do not consider these new standards to have a material impact on future transactions made in relation to the Group.  The Group is in the process of assessing the impact of these new standards on its accounting policy.

The following standards applicable to the Group but are not yet adopted are summarized below:

 

Title of standard

IFRS 16 Leases

Key requirements

IFRS 16 eliminates the classification of leases as either operating leases or finance leases for a lessee; they are recognized on the balance sheet as they are treated in a similar way to finance leases applying IAS 17. Leases are ‘capitalized’ by recognizing the present value of the lease payments and showing them either as lease assets (right-of-use assets) or together with property, plant and equipment. If lease payments are made over time, a financial liability is required to be recognized to represent the obligation to make future lease payments.

There is little change for the accounting for a lessor.

Impact

The Group is currently evaluating the effect that the updated IFRS 16 will have on the consolidated financial statements and related disclosures.

Effective Date

IFRS 16 must be applied for annual reporting periods beginning on or after January 1, 2019. The Group does not intend to adopt IFRS 16 before its mandatory date.

 

2. Significant changes in the current reporting period

(i) Significant events

 The financial position and performance of the Group was affected by the following events during the six months ended December 31, 2018:

 

On July 17, 2018, the Group announced that it had entered into a strategic alliance with Tasly for the development, manufacture and commercialization in China of the Group’s allogeneic MPC products, MPC-150-IM and MPC-25-IC, subject to governmental approvals from the PRC.

 

 

In September 2018, the Group announced that Tasly had received all necessary approvals for the transaction. On September 14, 2018, the Group recognized revenue of $10.0 million from the $20.0 million up-front payment received in October 2018 as this is the portion of revenue that control has been transferred to Tasly. The Group recognized the remaining $10.0 million from the $20.0 million up-front payment receivable from Tasly as deferred consideration on the consolidated balance sheet. The deferred consideration amount will be recognized in revenue when and if control transfers to Tasly based on the Group’s decision regarding the exercise of the Group’s rights in the terms and conditions of the agreement.

 

 

Page 14


 

3. Loss before income tax

 

 

 

 

 

Three Months Ended

December 31,

 

 

Six Months Ended

December 31,

 

(in U.S. dollars, in thousands)

 

Note

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercialization Revenue

 

 

 

 

1,217

 

 

 

949

 

 

 

2,223

 

 

 

1,555

 

Milestone Revenue

 

 

 

 

500

 

 

 

12,334

 

 

 

11,000

 

 

 

12,834

 

Interest Revenue

 

 

 

 

153

 

 

 

114

 

 

 

284

 

 

 

182

 

Total Revenue

 

 

 

 

1,870

 

 

 

13,397

 

 

 

13,507

 

 

 

14,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical trial and research & development

 

 

 

 

(10,555

)

 

 

(9,752

)

 

 

(21,921

)

 

 

(19,457

)

Manufacturing production & development

 

 

 

 

(3,989

)

 

 

(340

)

 

 

(7,640

)

 

 

(762

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

 

 

(5,088

)

 

 

(4,961

)

 

 

(9,920

)

 

 

(9,537

)

Defined contribution superannuation expenses

 

 

 

 

 

 

 

(93

)

 

 

(184

)

 

 

(192

)

Equity settled share-based payment transactions(1)

 

 

 

 

(1,208

)

 

 

(2,140

)

 

 

(2,026

)

 

 

(4,029

)

Total Employee benefits

 

 

 

 

(6,296

)

 

 

(7,194

)

 

 

(12,130

)

 

 

(13,758

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plant and equipment depreciation

 

 

 

 

(150

)

 

 

(237

)

 

 

(310

)

 

 

(504

)

Intellectual property amortization

 

 

 

 

(395

)

 

 

(364

)

 

 

(788

)

 

 

(728

)

Total Depreciation and amortization of non-current assets

 

 

 

 

(545

)

 

 

(601

)

 

 

(1,098

)

 

 

(1,232

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Management & administration expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overheads & administration

 

 

 

 

(2,249

)

 

 

(1,965

)

 

 

(6,253

)

 

 

(3,827

)

Consultancy

 

 

 

 

(797

)

 

 

(950

)

 

 

(1,646

)

 

 

(1,716

)

Legal, patent and other professional fees

 

 

 

 

(881

)

 

 

(845

)

 

 

(2,451

)